In the past, employers have suspended or eliminated the company match on retirement plans as recessions started or ramped up. You need to make the best decisions for your retirement plan, your wallet and your family.
As recently as 2020 as many as 21% of employers suspended their contributions to 401(k) plans. Often they do get reinstated but generally a while after the recession is over and the company has had time to recover. Currently, reports from Fidelity and Vanguard say that few plans have started this suspension process. That is good news but we want you to be prepared.
If your company stops matching, should you still contribute? The answer is a resounding “yes”. Contribute as much as you personally can. You are getting more value for your contributions now and as the market recovers you will share in those gains. Keep in mind that stopping your contributions would also have a tax effect on your paycheck that might cause you to pay more in tax rather than paying your future self. The Internal Revenue Service (IRS) recently announced that the contribution limit for 401(k) plans for 2023 will increase by $2,000. It is important to update your contribution percentage or dollar amount annually.
Investment advisors also caution stopping contributions could cause you to miss out on the match when it is turned back on. Additionally, if your match is suspended, you should try to contribute more (unless you are at the maximum) because your retirement account will be missing out on some of those company contribution funds.
That said, if a company does suspend it’s match it could indicate layoffs are around the corner. To prepare for potential layoffs advisors recommend having enough money to get my on a strictly bare-bones budet for three months. If you don’t have that cushion, it might be one of the rare times to reduce or pause your retirement savings. Once you have that emergency coverage – get right back in to retirement saving!
